TAXPAYER-BACKED banks Lloyds Banking Group and Royal Bank of Scotland are expected to unveil bonus pools worth a combined £970 million this week, despite losses forecast to run to billions.

Lloyds should see full-year losses narrow from £3.5 billion to an estimated £544 million

RBS, more than 80 per cent owned by the State, is due to pay about £620 million in bonuses, of which £250 million has been earmarked for its investment bankers.

City analysts believe RBS will say that its pre-tax losses for 2012 have more than tripled to £3.4 billion, due to Libor fines, higher debt servicing costs and compensating people and small businesses that were mis-sold payment protection insurance and interest rate swaps respectively.

Lloyds employees are believed to be in line to share £350 million.

It is thought that chief executive Antonio Horta-Osorio will be offered a £1.4 million bonus when the bank's remuneration committee meets early this week. Liberal Democrat peer Lord Oakeshott said Horta-Osorio, along with other Lloyds and RBS executives, should not get any bonuses. "He should not get a bonus while the bank is still owned by the taxpayer. At the very least, he should defer it until Lloyds has recovered. That applies to RBS as well," he said.

Lloyds should see full-year losses narrow from £3.5 billion to an estimated £544 million when it reports its results on Friday, due to fewer of its loans going bad, improved margins and cost cuts.

RBS and Lloyds are also due to update the market about the state of their respective branch sales, mandated as part of their bailouts at the height of the credit crunch in 2008. Lloyds has been working on a deal to sell 632 branches to the Co-Operative Group since June and fears are growing as to whether or not it will actually happen. RBS's deal to sell 316 branches to Santander collapsed after delays.

Both RBS and Lloyds are looking at floating the branches they have to dispose of as separate businesses, if they cannot sell them.

RBS is also expected to say that it plans to float its US arm Citizens, which is valued at £8 billion, within the next two years. An RBS source said that a disposal of Citizens would mean that the empire built up by disgraced former chief executive Fred Goodwin will have been dismantled.

Ahead of the banks publishing their results, Chancellor George Osborne is due to testify before the Parliamentary Commission on Banking Standards.

The Commission was set up by the Government last summer to find improvements to the way banks are run and regulated in the wake of the Libor scandal. It is due to publish its recommendations in the summer.

The Commission on Banking Standards recommends that errand bankers are barred from the city

He should not get a bonus while the bank is still owned by the taxpayer. At the very least, he should defer it until Lloyds has recovered

Liberal Democrat peer Lord Oakeshott

The Commission is to tell the Chancellor that errant bankers should be jailed or barred from the City.

It is thought the Commission will also grill Osborne on why the Government decided against giving the Bank of England the power to limit how much banks can borrow. Excessive borrowing by the banks is regarded as one of the causes of the credit crunch.

A group pursuing legal action on behalf of thousands of investors who lost money by subscribing for shares during the 2008 RBS rights issue that came before the bank was bailed out is preparing to issue proceedings in the next few weeks.

The case alleges that the rights issue deliberately sought to mislead investors regarding the capital position of the bank. This means that RBS is liable for any losses incurred, under section 90 of the Financial Services and Markets Act 2000.

The final claim is expected to be between £3.5 billion and £4 billion.

The group is forming a case against RBS, former chief executive Fred Goodwin, former chairman Sir Tom McKillop, Guy Whittaker, and Johnny Cameron, also former executives.